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Hello, I'm looking to build an ADU on a property and then convert the two homes into a Condo association.

Most flippers will only add the ADU if there is already under utilized living space (not garage conversions but craft rooms, bunk house, etc) to convert.  

We bought and converted it ourselves.

It will be worth converting to a rental.

Converting my garage into a studio: The conversion would cost approximately $20,000, and I could potentially earn $1,400 per month in rent.2.

If you can't convert the whole place to a LTR, then let it go and find another place.Having said that, is the place split into 2 legal residences?

We were going to buy a house next year so I told her that we would buy a 4 or five bedroom house or a house that we can convert to 4 or 5 bedrooms.

It can convert what would be a passive loss into a deduction against active incomeYou can do this all under your personal return w/out the LLC, but your losses will be limited even if you do a Cost Seg due to your AGI limitations."

However, over the last 20 years there have been some favorable plms and rev rulings (particularly surrounding trusts) that owning a membership in an entity and converting that to tic still equated to the same level of ownership.